The U.S. Department of the Treasury Office of Foreign Assets Control ("OFAC") extended a "maintenance and wind-down" period during which U.S. persons are permitted to engage in certain transactions involving a Russia-based aluminum company, United Company RUSAL PLC ("RUSAL"). RUSAL was placed on the Specially Designated Nationals and Blocked Persons list ("SDN list") due to its ties with Russian oligarch Oleg Deripaska.
General License 14 under the Ukraine-/Russia-related Sanctions Regulations authorizes, through 12:01 a.m. Eastern Daylight Time on October 23, 2018, transactions and activities involving RUSAL and its property that are "necessary to the maintenance or wind-down of operations, contracts, or other agreements." To qualify for the General License, such operations, contracts, or other agreements must have been in effect prior to April 6, 2018. U.S. persons engaging in transactions under General License 14 are not required to direct payments to or for the benefit of RUSAL or its subsidiaries into a blocked, interest-bearing account, as is the case for payments to other sanctioned companies covered by General License 12A. Finally, OFAC explained that it will not pursue secondary sanctions against non-U.S. persons for engaging in the same types of transactions and activity with RUSAL.
Treasury Secretary Steven T. Mnuchin stated that the maintenance and wind-down period was extended in light of the impact of the sanctions on "partners and allies," and the action would give Treasury time to consider RUSAL's removal from the SDN list. In an accompanying FAQ, OFAC indicated that the only likely path "for the United States to provide sanctions relief [to RUSAL] is through divestment and relinquishment of control of RUSAL by Oleg Deripaska."
Commentary / James Treanor
Coming less than two weeks after the April 6th sanctions were imposed, OFAC's decision to create an expanded (but not complete) carve-out for RUSAL demonstrates the impact the latest round of Ukraine- and Russia-related sanctions is having on global markets. Unlike many previous sanctions, the April 6th designations targeted major companies, like RUSAL, that are listed on international exchanges and which have extensive sales and production operations around the world. Without the limited authorizations provided by General Licenses 12A, 13, and 14, U.S. persons would be entirely prohibited from engaging in virtually any dealings with these companies, and foreign persons could be subject to secondary sanctions for conducting nearly any "significant transactions" with them. The potential ancillary effects on U.S. persons, as well as the impact on the "partners and allies" mentioned in Secretary Mnuchin's statement, likely contributed to OFAC's decision to modify its approach to RUSAL. Additional extensions, authorizations and related guidance are likely in the weeks ahead.
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